Re:The Worst Ideas of the Decade - Sarbanes-Oxley
by conover on Monday December 21, 2009 @12:44PM
(#1008214)
Exactly. Why not rate a company's financial transparency like bonds are rated? The market can factor that rating into the valuation.
Re:The Worst Ideas of the Decade - Sarbanes-Oxley
by joubert on Monday December 21, 2009 @02:44PM
(#1008446)
Probably because one needs standardized accounting methods, otherwise looking at two sets of financial statements would be like looking at a tractor on the one hand, and a strawberry on the other.
Re:The Worst Ideas of the Decade - Sarbanes-Oxley
by byrneseyeview on Monday December 21, 2009 @01:06PM
(#1008252)
One simple proxy: implied volatility of put options. Since put option buyers only make money when the stock falls--dramatically, and quickly--they are the most effective way to bet that someone is cooking the books.
Re:The Worst Ideas of the Decade - Sarbanes-Oxley
by joubert on Monday December 21, 2009 @02:44PM
(#1008447)
How would they know the books are being cooked?
Re:The Worst Ideas of the Decade - Sarbanes-Oxley
by byrneseyeview on Monday December 21, 2009 @05:35PM
(#1008747)
How would a rating agency? The options traders have money on the line; the rating agency is betting its reputation--which means it can exploit mispricings in the reputational marketplace by doing a bad job and hiring good PR people and lobbyists. This is the purest, most cynical way to explain ratings agencies in general.
Re:The Worst Ideas of the Decade - Sarbanes-Oxley
by joubert on Monday December 21, 2009 @02:40PM
(#1008441)
What makes you think governments (or government-sponsored bodies) do not set accounting standards already? (they do).
The problem is more that the US accounting standards are rule-based, instead of principles-based (e.g. IFRS).
Moreover, there's a distinction between listing requirements and GAAP.
http://www.forbes.com/2009/12/07/entertainment-pornography-c...
One of the arguments against Sarbane-Oxley is that it created incentives for smaller public companies to privatize and thus reduced the overall level of economic transparency -- just like forced condom use could cause the self-regulated adult industry to go underground.
W.r.t. Sarbanes, it seems that the US government would better serve the "greater good" by creating a few standardized sets of accounting/audit/disclosure requirements from which public companies could pick. Presuming that investors actually valued disclosure laws, companies could pick a set of rules which they think would maximize their valuation.
Let's say you are a small cap whose profitability would be significantly affected by the cost off complying with onerous SEC requirements. You could opt into a looser set of rules, but the market could punish you with a lower valuation as a result. Perhaps this lower valuation for less transparency/trust would be better than the reduced valuation from spending an extra $2.3M to comply with Sarbanes regulations.
As a libertarian, I'm not keen on government involvement in markets, but the above proposal is a compromise of sorts.